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Managing for Today and Tomorrow

Managing for Today and Tomorrow. Estate Planning Part One Estate Planning Concepts and Tools. What is Estate Planning?. The overall process of making decisions as to how property is to pass to others, during one’s lifetime, at death or after death. Who Should Do Estate Planning?.

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Managing for Today and Tomorrow

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  1. Managing for Today and Tomorrow Estate Planning Part One Estate Planning Concepts and Tools

  2. What is Estate Planning? The overall process of making decisions as to how property is to pass to others, during one’s lifetime, at death or after death.

  3. Who Should Do Estate Planning? Everyone… It is not just about money. Unless you are happy with the plan your state has provided.

  4. We Are Not Giving Legal Advice • Just providing nonbiased educational information. • Seek out your own legal council.

  5. Who is the Estate Plan for? • Is it to pass a business to the next generation? • Is it to plan for retirement? • Is it to jump start the kids’ ambitions? • Is it to avoid taxes?

  6. What are your most important goals? • Individual • Family • Retirement • Business • Spiritual • Other

  7. Key is to Articulate Goals • The parents together • The parents individually • The on-farm heirs • The off-farm heirs

  8. Develop Goals under Various Circumstances • What to do if spouse dies - • Receive income? • Sell interest? • Participate in management? • What to do if both die? • What to do if entire family dies?

  9. Common Estate Planning Goals • Minimize taxes at death. • Minimize probate costs and delays. • Conserve property during life and after death in accordance with goals. • Provide financial security: • Parents in retirement. • Family member with a disability.

  10. Key Areas of Concern • Guardian for minor children or adult children with special needs. • Providing income for a surviving spouse or children. • Management of estate property, assets, investments. • Minimization of probate and settlement expenses. • Minimization of estate and inheritance taxes. • Flexibility. • Liquidity for necessary and unavoidable expenses. • Gift planning. • Continuation and/or transfer of the business.

  11. Put Together a Team of Advisors • Start with referrals and interview potential advisors • Accountant • Banker • Insurance agent • Investment advisor • Lawyer • Financial Planner http://www.extension.iastate.edu/agdm/wholefarm/pdf/c4-61.pdf

  12. Getting Started • Determine what you own and how much it is worth. • Who do you want to receive your bounty? • When do you want them to get it? • Review any past estate planning. • Review of family insurance program. • Advisability of lifetime gifting. http://www.extension.iastate.edu/agdm/info/eyep/c4-57.pdf

  13. Important Considerations • Type of Assets • Inventory • Depreciable • Machinery & Equipment • Permanent Improvements • Real Estate • Land • Personal Residence • Tax Basis • Alternative forms for disposing of property during life

  14. Fair Market Value of Real Estate • You may be pleased! • May be one of your greatest stores of wealth.

  15. Ownership / Control • Fee simple • Life estate or life tenants • Remainder interest. • Leaseholds • Tenants in common. • Joint tenants with right of survivorship.

  16. Forms of Co-ownership Tenancy in common: • Each tenant holds an undivided interest in the property. • Upon a tenant’s death, the interest passes in accordance with the tenant’s will (or state law if no will.) • The decedent’s estate includes only the decedent’s interest.

  17. Forms of Co-ownership Joint tenancy: • Passes by survivorship designation. • Precludes use of life estate/remainder arrangement as to non-marital portion of the estate. • Magic words of conveyance. • Takes precedence over the will.

  18. Forms of Co-ownership Tenancy by the entirety (not allowed in all states): • Husband and wife can together convey a fee simple but neither can unilaterally sever the tenancy. States may have other forms of ownership as well.

  19. Estate Planning Implications of Property Ownership Forms • Spousal joint tenancies: • The property is treated at the first death as belonging 50% to each spouse for federal estate tax purposes. • “Fractional share” rule.

  20. Estate Planning Implications of Property Ownership Forms • Non-spousal joint tenancies: • Property is taxed in the estate of the first to die except to the extent the surviving owner proves contribution for its acquisition. • “Consideration furnished” rule. • Property included in decedent’s estate receives a new basis at death.

  21. Class Activity Find the Legal Terminology Vocabulary Matching Exercise and complete

  22. Homework Assignment • Find “Last Will and Testament”. • Find ten of terms listed in the Activity Worksheet in your will. • Check the titles on all real estate to see how it is owned. • Review the Estate Planning Questionnaire found in the book.

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